G ME M N T R THE NETHERLANDS 2015

G ME M N T R THE NETHERLANDS 2015 1

In 2012 the first edition of the Dutch Games Monitor was presented. Whilst maybe not the first research focusing on the Dutch games industry, it was the first where an extensive survey and a series of interviews provided a broad insight into the state of the industry. In the past few years interest in games and data about the games industry has increased. Many people were interested in an updated version of the Games Monitor. We are therefore happy to announce that in 2015 we had the opportunity to cooperate with a number of parties and can provide you with this second edition of the Games Monitor. The presents an overview of the economic development of the Dutch games industry. Research was conducted in the same manner as in 2012 in order to compare the figures and give you an insight into the changes in the industry. After an extensive selection of companies who we consider to be a part of the industry (see chapter 1 for a description of the definition and the appendix for more details on the research process), a questionnaire was sent to more than 400 companies. One hundred and thirty companies filled in the questionnaire. Once again many thanks to all of you who did! Without your contribution this report would be incomplete. Other contributors are educational institutes, who offer minors, full-time or part-time courses or degrees in games. After presenting the preliminary results in Utrecht at the Applied Games Summit of the Control Conference 2015, we took some time to discuss the results with the industry. Thank you to everyone who contributed during the round table discussions, on digital platforms and at the DGA-day in Leeuwarden on the 3 rd of December, 2015. As a result the Games Monitor includes data from surveys, interviews, discussions and desk research. The Dutch Games Monitor is divided into 7 chapters. Chapter 1 introduces the Facts and Figures of the Dutch games industry. Subsequently we look into the trends and developments for applied and entertainment games separately, since these markets differ quite substantially (chapter 2 and 3 respectively). After gaining insights into game education (chapter 4), we present a more in-depth analysis of the challenges the industry faces to achieve growth (chapter 5). To put things into some international perspective we also provide some main game industry findings of other European countries and use Poland as a case study to compare developments. (chapter 6 and 7) We are looking forward to continued and future discussions about the growth and development of the Dutch games industry on mediums such as the Drives platform of the Dutch Games Association (www.dutchgamesassociation.nl) 2 Hoofdstuk 1 - Tekst

COLOPHON AUTHORS NEO Observatory Olaf Koops TNO Tom Bakker Tijs van den Broek Jop Esmeijer CONTROL Eric Bartelson Matthijs Dierckx Economic Board Utrecht Evelien Boshove Ilse Wognum Dutch Game Garden Christel van Grinsven Eline Muijres Marilla Valente TABLE OF CONTENTS MANAGEMENT SUMMARY 4 1. THE DUTCH GAMES INDUSTRY FACTS AND FIGURES 2015 6 2. APPLIED GAME STUDIOS 12 3. ENTERTAINMENT GAME STUDIOS 18 4. GAME EDUCATION IN THE NETHERLANDS 22 5. GROWTH: THE CONSTANT CHALLENGE 26 6. EUROPEAN COMPARISON 30 7. INTERNATIONAL COMPARISON - POLAND 32 APPENDIX DATA AND METHODOLOGY 34 SUPPORT Dutch Games Association Krista Hendriks Irmgard Noordhoek DESIGN & LAYOUT Today COVER IMAGE Renowned Explorers by Abbey Games All rights reserved Dutch Game Garden 2016 This publication is made possible by the Growing Games program funded by Province of Utrecht, municipality of Hilversum and the project partners 3

MANAGEMENT SUMMARY The presents an overview of the economic development of the Dutch games industry between 2011 and 2015. A questionnaire was sent to more than 400 companies and returned by 130 companies. Following the presentation of the preliminary results, several industry roundtable discussions were held to further verify and analyze the findings. DEFINITION The games industry includes all companies whose core activities include at least one of the following processes in the value chain: the development, production, publication, facilitation and/or electronic distribution of electronic games. The Games Monitor further discerns two domains in the games industry: entertainment games and applied games. Entertainment games entail all electronic games that have entertainment as their primary goal. Applied games, also referred to as serious games, aim to inform, educate or train end-users. Applied games are developed and distributed across sectors, including education, health, transport, marketing, and defense. COMPANIES AND JOBS The findings show a rapid growth in the number of companies, from 320 in 2011 to 455 in 2015, an increase of 42%. The same period also saw a large number of companies close for business (110), which makes the overall growth even more impressive. THIS 42% GROWTH IS MOSTLY DRIVEN BY NEW GAME DEVELOPERS. TURNOVER AND PROFIT The positive worldwide trends are, to some extent, reflected in the developments of the Dutch games ecosystem. The analysis reveals that over 60% of Dutch game companies saw a growth in revenues, with an aggregated turnover of 155-225 million. However, most profits are modest (up to 100,000). ENTERTAINMENT VERSUS APPLIED GAMES Another striking development is the distribution of growth between entertainment and applied games. Whereas applied games still have a strong foothold in the Dutch games industry, the last couple of years saw a surge in the number of companies focused on entertainment games. Applied games Applied games remain an important pillar of the Dutch games industry. The total number of companies involved in applied games grew by 28% to 158 companies. During the 2011 2015 period, most applied game studios indicated a sharp decline in clients in 2013 and particularly in 2014. The magnitude of this decline was so severe that the continuity of some dedicated applied games studios was threatened. Some of these companies scaled down, leading to layoffs. Whether these new companies will actually succeed in creating a sustainable business, or make the difficult transition from a start-up to a scale-up, remains one of the biggest challenges for the Dutch (and European) games ecosystem. The number of professionals working in the Dutch games industry has grown as well, albeit much slower than the number of companies: from 2730 in 2011 to 3030 in 2015. The annual job growth of 2.6% is above the national average of -0.4% in 2011-2015. Companies are young (more than half are less than 5 years old) and relatively small (average number of employees is 7). In 2015 the number of tender requests began rising sharply. Some companies chose not to increase their workforce but opted instead to consolidate and minimize risks rather than increase profits (and risk). A striking trend the past years is an increase in partnerships in aspects such as marketing and promotion, strategic alliances and funding. Game companies have joined forces to maintain a sustainable business and scale up internationalization. There is almost no specialization in the type of sectors and clients applied game companies work for. The educational and healthcare sectors are slightly larger than other domains of application. 4 Management Summary

Currently, most of the projects completed by applied game studios are driven by client demands. A mismatch between industry needs and educational levels has been ascertained. To scale up the applied games market, a more productbased approach, where companies develop games that are applicable and sellable to many clients, is necessary. This provides a need to move away from producing oneoff solutions for individual clients. SOME GAME STUDIOS ARE EXPERIENCING DIFFICULTIES FINDING QUALIFIED INTERNS/ EMPLOYEES AND CHOOSE TO LOOK ABROAD. Dealing with issues related with operating in an innovative field and validation of applied games remain challenges for all applied game companies. Most experts agree that a business-oriented course should be added to game majors/masters. More knowledge on entrepreneurship is needed. Entertainment games Comparing the data from the 2012 Games Monitor to 2015, two findings are notable. First, there was a considerable growth in the number of entertainment game development studios, almost doubling from 83 to 160. Second, the increase in game development studios was not mirrored by a similar increase in the number of professionals working in entertainment. The number of jobs remained more or less the same (approx. 860 fte). In order to be successful and keep up with the demands of the users and publishers, larger teams are necessary. Over the past few years, successful studios are relatively large (11 to 25 people) and have more than five years experience. Success in not guaranteed in an ever-changing industry with a myriad of business models, increasing numbers of platforms and tech engines and shifting user demands. Competition remains fierce, making it even more difficult for talented, young, small studios to find their niche in the market and continue to grow after their initial launch. Dutch entertainment game studios are moderately successful at the moment. Specifically, new studios lack a dedicated business and/or marketing expertise that can help successfully identify market demands and launch a product in that segment. EUROPEAN COMPARISON Similarities between the Dutch and other European game industries are the small size of companies and a growth of new studios. The Dutch games industry has a heavy focus on applied games and a significantly smaller turnover per employee due to the lack of large and successful studios. RECOMMENDATIONS Eight recommendations are provided based on the results of the and the roundtable discussions with the industry: Foster an entrepreneurial mindset in the educational setting and in start-ups Manage expectations and create a healthy sense of realism concerning the chances to become a highly successful studio Promote matchmaking between creatives & business. Be aware of business models and the shifts in the market. Scale up via partnerships, mergers and pooling resources to increase the chance of growth. Capitalize on IP to increase the chance of growth. Focus on a more product-based approach rather than a single game. I ncrease awareness in the financial sector of the added value of games and vice versa. GAME EDUCATION The number of full-time game programs has increased by 25% from 35 in 2012 to 44 in 2015. Next to dedicated programs, many knowledge institutions also offer a range of game minors and single courses to their students. This has resulted in a significant increase of the total number of game-related minors and courses from 9 in 2012 to 22 in 2015. The annual outflow of all game students has grown to approximately 1600 for fulltime and part time courses combined. 5

1. THE DUTCH GAMES INDUSTRY FACTS AND FIGURES 2015 The global games market continues to grow impressively. 2015 marked an annual growth of more than 9% totaling $91.5 billion 1. For the applied or serious games market, impressive growth figures are reported 2. How does the Dutch games industry profit from these developments and how has the number of companies and jobs evolved since the last Games Monitor was published in 2012? To answer these question, we analyzed the developments of all companies in the Dutch gaming industry. The overall conclusion that can be drawn from the data is that the Dutch gaming industry is a young, fast-growing and dynamic sector. The number of game companies increased from 320 in 2011 to 455 in 2015. However, one third of the game companies (110 companies) active in 2011 did not survive the last four years. As a result, more than half of the game companies is less than four years old. 1.1 Scope matters: the games industry defined In order to measure the economic impact of the games industry, a clear definition of a game company is needed. The OECD (2009) 3 defines the content and media industry as: Content and media industries [who] are engaged in the production, publishing and/or electronic distribution of content products. The substantial growth in game companies can largely be attributed to an increase of new game developers. The growth in the sector is volatile, fueled by fast paced and ever-changing developments in underlying technologies, platforms and business models. It therefore remains to be seen how many of these new companies will actually succeed in creating a sustainable business, or make the difficult transition from a start-up to a scale-up, which is one of the biggest challenges for the Dutch (and European) gaming ecosystem. This chapter presents an overview of the economic developments of the Dutch games industry for the period 2011-2015. Research was conducted using the same methodology as in 2012, taking the databases from Control and Dutch Game Garden as a starting point. 3 Bear in mind that the facts and figures presented in this chapter focus on the direct economic impact of the games industry. The overall economic and societal impact of games, however, is expected to be much higher. Similarly, the games industry includes companies that develop, produce, distribute and facilitate electronic games. 4 Using the above mentioned criteria, the games industry is defined as: ALL COMPANIES WHOSE CORE ACTIVITIES INCLUDE AT LEAST ONE OF THE FOLLOWING PROCESSES IN THE VALUE CHAIN: THE DEVELOPMENT, PRODUCTION, PUBLICATION, FACILITATION AND/OR ELECTRONIC DISTRIBUTION OF ELECTRONIC GAMES. The Games Monitor discerns two domains in game development: entertainment games and applied games. Entertainment games entails all electronic games that have entertainment as the primary goal. Applied games, also referred to as serious games, aim to inform, educate or train end-users. Applied games are developed and distributed in many sectors, including education, health, transport, marketing and defense. 1. Newzoo (2015), 2015 Global Games Market Report, www.newzoo.com 2. Idate (2015), Serious Games market report, www.idate-research.com Marketstomarkets (2015), Serious Game Market by Vertical (Education, Corporate, Healthcare, Retail, Media and Advertising), Application (Training, Sales, Human Resource, Marketing), Platform, End-User (Enterprise, Consumer), and Region - Forecast to 2020, www.marketstomarkets.com. 3. OECD. (2009). Guide to measuring the information society. OECD/OCDE Read more at http://www.newzoo.com/insights/global-games-market-will-grow-9-4-to-91-5bn-in-2015/#qgpuomuueg1vcuiy.99 4. A more detailed description of the data and research methodology is provided in the Appendix. 5. Koops, O. & T. Bachet (2012), De Nederlandse gamesindustrie in cijfers, In: Taskforce Innovatie Utrecht (2012) Gamesmonitor 2012, Utrecht. 6 The Dutch Games Industry facts and figures 2015

Besides game development, the following types of actors are involved in the value chain of the games industry: game technology supplier, service provider, publisher and distributor (see Games Monitor 2012 5 for a more extensive description of the value chain). The current definition will be referred to as the core definition of the games industry because it selects a part, and not all, of the economic impacts of gaming activity in the Netherlands. Game development must be one of the core activities of the company in order to be deemed part of the games industry. The selection criteria that a significant part (at least one third) of the company s turnover and/ or strategic focus should be on the development, production, publication, facilitation and/or distribution of electronic games. As a consequence, many organizations that are actually active in the applied gaming industry (clients, educational institutions, research institutes), were excluded from our analyses. Clients can range from advertising agencies, hospitals and the Ministry of Defense to several public authorities and training agencies. In many cases, these companies are often already active in domains for applied gaming, such as education, health, and marketing. They use games or elements of games to enrich their product portfolio ( gamification ) but are not a gaming company. In such cases, gaming is not the core business of the company, but a secondary activity. For example, an advertising company may develop a campaign on social media that includes a game. The same goes for a museum that develops an online game for its visitors or Philips that employs an in-house group of game developers for their health product portfolio. Another example is e-learning. E-learning companies have learning and education as a primary goal and use games as part of the e-learning concept. The e-learning concept however is not an electronic game. Also, some large companies, such as the Ministry of Defense and TNO, cannot be defined as a gaming company, although their inhouse game development activity can be significantly large. Examples of game activity in the Netherlands outside the scope of the core definition of the games industry There are currently 455 companies in the Netherlands that meet the core criteria and are part of the games industry. To show the difficulty of defining the borders of the definition, below is a list of examples of companies that are excluded from the scope of the core definition but who are involved in the gaming ecosystem. MEDIAMONKS MediaMonks is a large, global creative digital production company that works for and with advertising agencies to craft amazing digital work for global brands. The Dutch location of MediaMonks has more than 100 employees, including 15 game developers. Gaming however is not a core activity of MediaMonks. MOTEKFORCE LINK Motekforce Link develops high-quality rehabilitation technologies and real-time feedback, using virtual reality techniques. Motekforce Link uses game elements in their core business (rehabilitation training programs), but is not a game company. Motek Entertainment BV, located at the same address is included in the list of game companies and focuses on innovative 3D animation, motion capture and VR. PHILIPS Philips Eindhoven develops various medical games that are used for innovative multi-disciplinary development projects for Philips future products. KEESING MEDIA GROUP Keesing Media Group publishes puzzles and games such as Denksport and Sudoku. They also develop apps for digital activity. In terms of turnover these activities are marginal compared to the physical games. 7

1.2 Facts and figures of the games industry To conclude, the core definition of the games industry captures the economic impact of companies that include gaming as their core business. The overall economic and societal impact of games, however, is expected to be much higher. Games and game mechanics are also adopted by companies who are active in all kinds of sectors such as education, health, finance, public safety, and energy. For these companies, games are not their core business but they do add value to their bottom line. Impact measurement resulting from these crossovers are not included in this study nor are indirect impacts on the ecosystem of the games industry (customers, suppliers, institutional stakeholders etc. In order to capture the true and full economic impact of the game industry, future studies should ideally include the effects of in-house game activity in other sectors and the more indirect societal impacts of gamification. KEY ECONOMIC INDICATORS The 2015 Dutch games industry consists of 455 companies. They employ 3,030 people and report a total turnover of approximately 155-225 million in 2015. This indicates a rapid growth in the number of companies, from 321 in 2011 to 455 in 2015, an increase of 42%. The same period also saw a large number of companies close for business (110), which makes the overall growth even more impressive. This 42% growth is mostly driven by new game developers. The number of professionals working in the Dutch games industry has grown, albeit much slower than the number of companies: from 2,730 in 2011 to 3,030 in 2015. The annual job growth of 2.6% is above the national average of -0.4% during 2011-2015. Furthermore the developments in this time span indicate that the dominant position of game development in the value chain for games has increased. Table 1.1: Key economic indicators of the Dutch Games Industry 2015 Value chain Turnover 2015 (mln euros) Jobs 2015 Companies 2015 Jobs per company Jobs growth 1 2011-2015 Company growth 1 2011-2015 Game Producer 115-145 2 1865 352 5.3 410 107 Game producer / publisher - 320 19 16.8-80 8 Publisher 15-25 275 23 11.9 25 0 Distributor 10-20 185 11 16.8 30 0 Technology suppliers 10-20 230 10 23.0-115 0 Service provider 5-15 155 40 3.9 25 19 NL Games industry 155-225 3030 455 6.7 300 134 Scource: TNO/NED Observatory, based on data from CONTROL/Dutch Game Garden/LISA/CBS 1. A strict use of the definition led to a correction of the figures for 2012 Games Monitor. Ten companies whose core focus is not games were deleted. These companies employed 300 people at that time. Additionally, some game companies were reassigned in the value chain. 2. The turnover of Game developer and Game developer/publisher are shown together due to the dominant position of Spil Games in the category Game developer/publisher. 8 The Dutch Games Industry facts and figures 2015

Nuclear Throne Vlambeer ENTERTAINMENT VS APPLIED GAMES Compared to the 2012 Games Monitor, the total number of game companies has increased. Entertainment game production has almost doubled to a total of 160, taking over applied gaming s previous dominant position (see Figure 1.2). The number of companies in the applied games industry also grew to a total of 119, as did companies specialized in asset development (arts, music and audio). From an international perspective, applied games still have a strong foothold in the Dutch games industry (see chapter 6). Figure 1.2: Number of game developers by specialization in 2011 and 2015, based on number of companies Source: TNO/NEO Observatory, data from CONTROL/Dutch Game Garden/LISA 163 160 119 83 95 36 28 95 139 Games Monitor 2012 Entertainment Applied Both Unknown Assets 12 37 32 160 119 83 Games Monitor 2012 SIZE OF COMPANIES The average size of a company in the games industry is still relatively small: about 7 employees on average, compared to 9 in 2012. This can be explained by the change in the structure of the games industry (caused by the increase in start-ups) in the Netherlands and by the large reorganization of Spil Games, the second largest game company of the Netherlands. The highest growth took place in game development which consists of relatively small-scale companies. The number of small companies in the games industry is rapidly increasing. Similar to the creative industry as a whole, the game industry has many start-ups and small firms. The number of freelancers and self-employed entrepreneurs without employees is relatively limited compared to other creative industries. The Dutch game industry has substantially more jobs in medium and large sized firms, between 11 and 50 employees. The share of jobs in companies with less than 10 employees is modest (around 30 %). The games industry with a diverse skillset including both creativity and technology positions the games industry in-between the creative industries and ICT. This is also reflected in company size (Immovator 2014). 1 107 98 36 28 12 37 Figure 1.3: Growth of number of companies by firm size in 2011-2015 32 Entertainment Applied Both Unknown Assets 53 33 35 36 1. Immovator (2014), Monitor Creatieve Industrie 2014, Stichting Immovator Netwerk. 22 11 5 5 3 4 0-1 2-5 6-10 11-25 26-50 51-100 101-249 Source: TNO/NEO Observatory, data from CONTROL/Dutch Game Garden/LISA 9

This impressive growth of small scaled companies indicates that start-ups have gained a dominant position in the industry. THE NUMBER OF GAME COMPANIES WITH MORE THAN 10 EMPLOYEES HAS ALSO INCREASED FROM 56 IN 2011 TO 65 IN 2015. Although research tracking the growth of individual game companies over a longer period of time is needed, this is an indication that scale-up activities are taking place in the games industry. REGIONAL HIGHLIGHTS Amsterdam s game industry is the largest, just short of 800 jobs divided over 89 game companies. Guerrilla Games, by far the largest game company in the Netherlands is located in Amsterdam. Other large game companies in Amsterdam are Vanguard Games, Orange Games, Perfect World Europe and IJsfontein. Rotterdam is the second largest city, providing 275 jobs. Since the Games Monitor 2012, Rotterdam has surpassed Utrecht and Hilversum in the ranking, as a result of the growth in applied gaming. Examples of applied game companies in Rotterdam are DPDK, Ranj and VSTEP. Utrecht ranks third and remains the hub for many small game companies (65!), mainly focusing on entertainment games and indie games. The Hague (Gamepoint), Hilversum (Spil Games), Den Bosch (König Gaming), Eindhoven (GameHouse) and Delft (E-Semble) follow in the ranking. Age of Wonders III Studios Thriumph In Hilversum, the number of game company employees decreased dramatically due to the personnel reduction of Spil Games which still remains the second largest game company in the Netherlands. Groningen shows a remarkable growth due to the foundation of game development hub IndieTopia. 10 The Dutch Games Industry facts and figures 2015

Figure 1.4: Number of jobs in the games industry by city: for the top 9 cities, 2015 GRONINGEN 101 JOBS THE HAGUE 224 JOBS AMSTERDAM 787 JOBS HILVERSUM 217 JOBS DELFT 104 JOBS ROTTERDAM 273 JOBS UTRECHT 262 JOBS DEN BOSCH 156 JOBS EINDHOVEN 112 JOBS Game Developer - Entertaintment Game Developer - Applied Game Developer - Both Game Developer - Assets Game Developer / Publisher Publisher Distributor Technology Supplier Service Provider Increase number of jobs Decrease number of jobs Unchanged number of jobs Source: TNO/NEO Observatory, data from CONTROL/Dutch Game Garden/LISA 11

2. APPLIED GAME STUDIOS This chapter focuses on the facts and figures and challenges for applied game studios. First, we will look at the key figures for applied game studios. Applied games are an important aspect of the Dutch games industry. This segment of the market faces some specific challenges to become a sustainable economic sector. In this chapter we examine a few of these challenges and trends in more depth. e gures r a lie game studios Applied games remain an important pillar of the Dutch game industry. The total number of applied developers grew by 28% to 158 companies. Almost half (44%) of all Dutch game development companies are involved in applied games ¹. Figure 2.1: Jobs and companies in applied vs entertainment games Applied vs Entertainment (Jobs) 8% Both 5% Assets Looking at the number of companies, the market share for applied games decreased from 56% in 2012 to the aforementioned 44% in 2015. Making applied games seems to be less popular among the large number of new game development companies. Survey results show that for companies younger than ten years, only 17% focus solely on applied games, while over 50% focus solely on entertainment games. The percentages are divided more equally for companies older than 10 years. There are no hard turnover or profit data available for applied games in the Netherlands specifically. Factoring in the low turnover of most starting developers, it can be assumed that the economic impact of applied studios has risen more than that of its entertainment counterparts. 41% Applied 46% Entertainment All of the relatively large dedicated applied game companies surveyed in 2012, are still active in 2015: Grendel Games, Little Chicken, IJsfontein, Silverfit, Ranj (now: &ranj), VSTEP, E-semble (now: XVR), Qlvr and MAD Multimedia. Applied vs Entertainment (Companies) 10% Both 11% Assets During the 2011 2015 period, the market has not been as calm as figures may suggest. Most applied game studios indicated a sharp decline in clients in 2013 and particularly in 2014. The magnitude of this decline was so severe that the continuity of some dedicated applied games studios was threatened. Some of these companies scaled down, leading to layoffs. 34% Applied 45% Entertainment Entertainment Applied Both Assets In 2015 the number of tender requests began rising sharply. Some of the companies indicated having more interested clients than they could take on. Considering the recent past, some of them chose not to increase their workforce in order to address this increasing demand. Instead, they opted to consolidate and minimize risks rather than increase profits (and risk). 12 Applied game studios

It is important to note that measuring the exact number of clients for applied game studios falls beyond the scope of this research. Nonetheless, all of the applied studios indicated very similar trends in client development over the past few years. Reports on numbers and percentages of applied game studios in other countries are sparse. FOREIGN SECTOR ORGANIZATION OFFICIALS HAVE REPEATEDLY STATED THEY ESTIMATE THE PERCENTAGE OF APPLIED GAME STUDIOS IN THEIR TERRITORY TO BE SIGNIFICANTLY LOWER THAN THE ALMOST 50% IN THE NETHERLANDS. Comparative figures are not readily available, but it seems that the Dutch game industry is indeed unique in its substantial focus on applied games. 2.2 Trends and challenges r a lie ga es INTERNATIONAL DEVELOPMENTS Expanding the customer base is one strategy for scaling up a business. This is not always easy for applied games because of the differences between countries in terms of, for example, health care systems and requirements for the use of new technologies. Some examples: Four of the largest Dutch applied game companies started experimenting with shared marketing and promotion (calling themselves the G4 group); A Dutch hospital and a Dutch health insurance company acquired a minority stake in applied studio Grendel Games (2014); Consultancy agency &samhoud acquired a 50% stake in applied studio RANJ (2015); Several other applied game developers are actively searching for (financial) partners. EMERGING SECTOR The use of applied games is increasing, for example in the health sector. But for many potential clients, applied games are still an unknown territory. A lot of time and energy is being spent explaining the game use and development process. The sector faces some specific issues related to operating in an innovative field, a number of which increase the risk of operating a game studio. A few examples: Client wishes As applied games are new to most clients (as opposed to websites, corporate identities, etc.), it can be hard to clearly identify the client s wishes. The process of demand articulation takes some time, and often represents an upfront investment. Furthermore, the same inexperience with games can make it hard for studios to explain (and defend) budget proposals. This is an issue that will subside over time, as more clients integrate applied games into their operations. Companies whose turnover depends less on projects for individual clients (i.e. companies developing their own IP) are more internationally orientated. In the survey, 42% of applied game companies reported that their turnover is fully realized in the Netherlands. Fifty-eight percent have international clients and turnover. Some of the larger applied game studios have opened international offices. Most notably, the simulation-oriented XVR and VSTEP have offices in Singapore and a worldwide network of partners and clients. PARTNERING & FUNDING One trend became particularly apparent among the larger applied game development studios in the past two years: partnering - in more ways than one. Development time Since most studios tackle projects on a case-by-case basis, it is difficult to accurately estimate development time and therefore the exact costs of a project. The potential for overrunning time or budget constraints is far greater for game projects than websites, for instance. A luxury product Even though games are becoming more popular in certain industries as recruitment or HR tools, they are still considered a luxury product. Most clients are aware of the added value of social media, corporate branding and marketing. However, games are viewed as a more time-consuming and risky proposition. Many clients are unaware of the development costs involved, and often think a game is (too) expensive. Embedding the game into the organization is also not taken into account. 13

VALIDATION As the game industry matures and the application of games in other sectors grows, game companies are asked to prove that their products actually work. In some cases, validation requests go beyond the standards of a sector. For instance in the educational sector, educational tools are rarely validated or tested before use in educational settings. However game-based learning and the use of games in the classroom is generally only accepted if the games have been certified or validated via scientific means. The healthcare sector is known for rigorous validation trials used for new drugs. Games that have been successful in this sector have gone through the same extensive and costly process of validation, while using other means of validation would facilitate the process, especially for games developed for awareness and prevention purposes. To prevent validation issues from hampering the growth of applied companies, they should be discussed on a governmental level to determine whether there is a way to alleviate some of the risks involved in validating applied games. Existing methods for risk analysis of medical devices are not aligned with the increased use of apps, applied games and online e-health tools. There is a lack of transparency for endusers (consumers, patients, health professionals and health mediators and insurance companies) about the status, use and effectiveness of these new tools. At the same time, existing efficacy and risk analysis frameworks often lead to quantitative long-term validation requirements that slow down the possible contribution to better and affordable healthcare for the patient. This also leads to barriers for new entrants and innovative ideas. The Growing Games project¹ has therefore started an initiative to lobby for a better system of risk analysis and validation of health applications. The proposal includes validation during the iterative cycle of game design. A short as possible cycle and a more efficient validation process are necessary considering the fast developments both in technical platforms and devices and the applications on those devices (critical time-tomarket cycle). NO SPECIALIZATION When asked about the type of clients applied game studios work for, results revealed almost no specialization. Almost all of the surveyed studios said they were working with clients from a range of sectors. Taking into account the size of their clients via weighted average, there hardly is a difference between the sectors game companies serve (see figure 2.2). Survey results (see figure 2.3) indicate that the main goals of applied games developed in the Netherlands by Dutch game studios are: applied game education, healthcare (training, treatment and prevention combined), closely followed by training of professionals, and awareness creation. 1. http://www.growinggames.nl/validatie-van-ehealth-applicaties-moet-sneller-en-beter/ Gryphon Rider Grendel Games 14 Applied game studios

VIRTUAL REALITY CONSOLES / PC MOBILE - APPS 67% 22% 11% 49% 40% 11% 48% 38% 14% LOCAL GOVERNMENTS MOBILE - BROWSER GAMES 35% 39% 26% REGIONALS GOVERNMENTS WEARABLES NATIONALS GOVERNMENTS HEALTHCARE EDUCATION PR AND MARKETING FINANCIAL SECTOR BUSINESS SERVICES 34% 51% 15% ONLINE BROWSER GAMES 32% 40% 27% PHYSICAL GAMES AND INSTALLATIONS 29% 41% 30% Figure 2.2: Applied game based on weighted average markets TV (SMART TV. SETTOP BOX) 15% 44% 41% MILITARY EMERGENCY SERVICES CULTURAL SECTOR LOGISTICS OTHER MARKETS (OTHER) GAME STUDIOS GAME PUBLISHERS Agree Neutral Disagree PUBLIC SPACE 13% BUSINESS SERVICES 32% 48% 20% EDUCATION (SCHOOLING) 50% LOGISTICS 31% 54% 15% MARKETING & PR 37% CULTURAL SECTOR 44% 41% 15% RECRUITMENT 11% EMERGENCY SERVICES 44% 45% 12% TRAINING OF PROFESSIONALS (NOT HEALTH) 39% MILITARY 38% 49% 13% AWARENESS (NOT HEALTH) 39% FINANCIAL SECTOR 34% 49% 13% HEALTHCARE: TRAINING OF PROFESSIONALS 15% MARKETING & PR 50% 40% 10% HEALTHCARE: TREATMENT 19% EDUCATION 73% 20% 8% HEALTHCARE: PREVENTION 19% HEALTHCARE 64% 29% 8% OTHER GOALS 24% GOVERNMENT 48% 45% 8% Figure 2.3: Goals of applied games Figure 2.4: Expected growth in applied game markets No client specialization has the advantage of being able to take on more diverse clients, reducing risk of a decreasing client base. On the other hand, a lack of specialization makes it more difficult to aim a company s marketing goals and to really understand what is happening in a specific market. Growth for applied games is expected in several domains, most notably in healthcare and the educational sector. We do see some specialization in companies that have been particularly successful with one kind of client, especially in healthcare. However, this does not appear to be the norm among Dutch applied game studios. 15

2.3 Support The government recognizes the applied game sector as a potential growth sector. We see governmental support on several levels, primarily due to the inclusion of (applied) games in the Top Sector policy. Programs such as ClickNL Games and Growing Games² have provided support for both applied and entertainment games, however they tend to focus more on the applied games sector. We see a lot of support for scientific research on (primarily applied) games, with the Netherlands Organization for Scientific Research (NWO)³ being responsible for the bulk of the research funding. The newly opened call for KIEM (Knowledge Innovation Mapping) is an interesting scheme to encourage and facilitate public-private partnerships in the creative industries.⁴ e uture a lie games: From Contractor to Creator Currently, most of the projects completed by applied game studios are driven by client demands. To scale up the applied games market, a more product-based approach, where companies develop games that are applicable and sellable to many clients, is necessary. This provides a need to move away from producing one-off solutions for individual clients. Some examples: Tygron, XVR and VSTEP (can be considered applied game studios, although they market themselves primarily as simulation companies) all have their own solutions that are applicable for more than one client. They serve hundreds of clients in dozens of countries all over the world. Grendel Games may well be the best example of a traditional applied game studio turning into a much more IP oriented company. Primarily catering to the healthcare sector, it has developed games such as Underground, a training game and tool for surgeons, and Gryphon Rider, a game and tool for patients with balance issues, that are being sold to hospitals worldwide. Active Cues, founded by researchers and applied studio Monobanda Digital, developed ToverTafel (MagicTable), which helps Alzheimer s patients. ToverTafel has been developed as new IP from the start and is being sold as a product. They are now broadening their market to include the mentally disabled and patients with autism. During conversations with several of the larger applied studios, most of them expressed their desire to shift towards a more IP based company. Tomas Sala, co-founder of applied studio Little Chicken, delivered a speech on this subject during the 2015 Control Conference. He stated clearly the desire of his company to move forward this way and urged others to do the same. Being less depended on client assignments reduces the operating risk and potentially increases profits (due to a potentially much larger scale). Having successfully developed and deployed new intellectual property (IP) makes a studio far more attractive to investors. We see some of the more successful and fast-growing applied game studios moving down that path. To reduce the risk of developing new IP, which typically has to be pre-financed, some applied studios are currently searching for partners. Overall, an acceleration of this trend among applied game studios is expected in the coming years. This is considered as one of the most important developments in the applied game sector for the near future. 1. The results in this chapter are for companies that focus solely on applied games and companies that are active in both entertainment and applied game markets. 2. http://www.clicknl.nl/games/about/?lang=en; www.growinggames.nl 3. http://www.nwo.nl/en/funding/our-funding-instruments 4. http://www.nwo.nl/en/funding/our-funding-instruments/gw/creative-industry/creative-industry---knowledge-innovation-mapping-kiem/creative-industry--- knowledge-innovation-mapping-kiem.html 16 Applied game studios

ABN AMRO Game IJsfontein & Brand New Game 17

3. ENTERTAINMENT GAME STUDIOS The previous chapter focused on the facts and figures and challenges for applied game studios. In this chapter we focus on entertainment games. First, we will look at the key figures for entertainment game studios. Bear in mind that this chapter does not focus on the Dutch games industry as a whole, but only on entertainment game studios that are involved in the process of game development 1. Entertainment game studios have their own challenges and trends, as the market and business models are very different compared to applied games. In this chapter, we highlight a few of these trends in detail. Some of these are specific for the Dutch industry. Others are a more global phenomenon. e gures e tertai e t game studios When we compare the data from the 2012 Games Monitor to 2015, two findings are notable. First, there was a considerable growth in the number of entertainment game development studios, almost doubling from 83 to 160. Second, the increase in game development studios was not mirrored by a similar increase in the number of professionals working in entertainment. The number of jobs remained more or less the same as in the 2012 Games Monitor (approx. 860 fte). So how do we explain these findings? The answer lies in the rise of independent (or indie) game studios - small companies consisting of one to a maximum of five people, formed mostly by students during or right after graduation. Most of these studios produce games for mobile platforms (ios, Android, Windows Phone). Fresh out of college or university and often still living with their parents, these new professionals survive on a shoestring budget. THEIR BIGGEST INVESTMENT IS THE TIME THEY SPEND ON THE DEVELOPMENT OF THEIR GAME. 3.2 Trends and challenges r e tertai e t ga es CHANGING MARKETS AND BUSINESS MODELS The market for entertainment games has shifted considerably over the last three years. The rise of smart phones around seven years ago with the introduction of the iphone created opportunities for small teams to score big with relatively small and cheap games. This situation has changed. It has become much harder to realize large profits in this market. Visibility and marketing require a much greater effort. With few exceptions, small games from small teams no longer rake in (the big) money. However, the survey shows that almost half of the young studios focus on this particular market segment. Recent years showed a transition to the PC-platform Steam. In 2015, forty four percent of respondents developed games for this platform. Initially, this platform offered great opportunities, but the popularity of Steam is making it increasingly difficult to be successful there. Free to Play dominates the mobile market. Mid-sized games (built by mostly mid-sized and experienced teams) dominate the PC marketplace and games with high production values dominate the console market. The increment of new studios is seldom in one of these segments. Start-up studios need to realign their business model to follow developments in the market in order to be successful. 18 Entertainment game studios

SIZE MATTERS Guerrilla Games is the largest game company in the Netherlands with over 200 employees. Its workforce is constantly expanding to meet the demand of shipping their new game on time. Following the successful release of the original Killzone on PlayStation 2 in 2004, Guerilla went on to create several award-winning sequels and spin-offs. They are now working on brand-new IP scheduled for a 2016 release. Medium-sized entertainment studios are shifting their scope and way of working. A few examples are Triumph Studios, which was forced to scale down a few years ago, but with the production of Age of Wonders III nearing completion, it added personnel to ensure quality and be able to deliver on time. Paladin Studios is growing rapidly to meet the demand of their Japanese clients. Ronimo Games has a team of 20 and continues to succeed on the market with Awesomenauts and Swords and Soldiers. Engine Software, Abstraction Games and Nixxes are all mid-sized studios with a successful track record. They work for hire and port games to various platforms. Successful smaller teams have similar strategies to tackle demand by temporarily hiring freelancers, outsourcing some of the work, or forming partnerships. Vlambeer, whose latest title is Nuclear Throne, build games with the help of freelancers. M2H and Blackmill Games are two studios that work together on the successful Steam game Verdun. They also hire freelancers and work for hire studios. In conclusion, it seems that in order to be successful and keep up with the demands of the users and publishers, larger teams are necessary. Over the past few years, successful studios have tended to be relatively large (11 to 25 people) and have more than five years experience. There were some exceptions in 2015: small independent game studio Lucky Cat Studios scored a major hit with Nom Cat and independent developer Noio was very successful with Kingdom. SUCCESS! NOW TRY TO REPEAT IT! Another point of concern is the hit-driven nature of the games business. It is hard to score a hit, and once a studio has one, it is difficult to capitalize on this. For instance, Abbey Games - a young entertainment studio - scored a major hit with their Steam debut game REUS in May 2013. They invested the profits in upscaling the studio and developing new IP. Their new game Renowned Explorers was released in September 2015 and was not an instant success. Abbey could not capitalize on the 800,000 player base they had with REUS. However, sales are continuing to steadily increase². Other studios like the above-mentioned Guerilla Games, Ronimo Games and Triumph Studios have managed to score successive hits with sequels and new IP. Maximizing IP both in sequels and merchandising is a strategy for repeated success. Guerrilla Games Horizon Zero Dawn 19

SENIORITY AND EXPERIENCE New entertainment studios mainly consist of first-time entrepreneurs. These studios have limited experience as game developers and hardly any knowledge about how to effectively run a business. No seniority in a start-up team often means poor planning, and as such projects run late and are more expensive. In a recent survey³ Control found 80% of respondents had underestimated the development time of their latest games, often by more than 100 to 200%. monitors sales of games on Steam), we can conclude that, compared to other more established studios, THE MAJORITY OF START-UPS HAVE A SMALL TURNOVER AND MAKE LITTLE TO NO PROFIT. More on turnover and profit can be found in chapter 5. Senior developers have a bigger chance of starting a successful company, but this group does not start new studios in the Netherlands. Senior developers already have employment or move abroad for better work opportunities. New studios struggle to remain afloat. Based on the survey and additional data from sources like SteamSpy (which For instance, two entertainment game studios with promising reviews and innovative ideas were forced to bow out due to lack of revenue after the launch of their games. Vogelsap, founded in as a student company in 2013, first released their game The Flock in August 2015. Monogon Games, founded in 2012, first released their game Interloper in May 2015. Despite enjoying a lot of positive pre-launch coverage, Vogelsap s asymmetrical multiplayer shooter The Flock failed at launch. Creative Director and Game Designer Jeroen Van Hasselt analyzed the launch and what went wrong during a frank and honest talk at Control Conference 2015.⁴ The expectations for the game far exceeded the reality. There was a mismatch between price (too high) and available content. During launch, there were a lot of bugs leading to several negative reviews shortly after the launch. The longevity of the game was short because it was too repetitive. This led to just 3000 copies sold in the first two months and not enough players to keep the game going.⁵ Several campaigns around major holidays and alterations in for example price did not boost sales. As a result, the studio did not earn any profit and was forced to close down. VIRTUAL REALITY CONSOLES / PC MOBILE - APPS 67% 22% 11% 49% 40% 11% 48% 38% 14% MOBILE - BROWSER GAMES 35% 39% 26% WEARABLES 34% 51% 15% ONLINE BROWSER GAMES 32% 40% 27% PHYSICAL GAMES AND INSTALLATIONS 29% 41% 30% TV (SMART TV. SETTOP BOX) 15% 44% 41% Figure 3.1: Expected growth Agree Neutral Disagree 20 Entertainment game studios

Platforms for entertainment games keep changing with new technical developments leading to new chances for games. When asked about expected growth on various platforms, Dutch game companies were most positive about the chances for Virtual Reality. For instance several developers have been experimenting with games for Oculus Rift. As the device will be commercially available in 2016 a growth in games specifically designed for VR is to be expected. Almost half of the respondents were positive about the developments both in consoles and pc as well as in mobile apps. For wearables it seems that more people are still trying to see which way the wind blows with over fifty percent of people rating this device as neutral. Respondents are least positive about the chances for TV. 3.3 Support Unlike the applied games sector, entertainment games get minimal (financial) support from government and other organizations. The entertainment sector of the games industry does not have a strong representation with the government. There is no serious lobby for a more substantial funding like filmmakers in the Netherlands have access to. More importantly there is no talk of tax benefits for game developers like there are in surrounding countries such as Belgium, France and the UK. There are, however, (partly government funded) incubators like the Dutch Game Garden and clusters of game companies (e.g. Indietopia) that actively support the growth and development of entertainment games and teams. Gamefund grants support development of artistic games. 1. See table 1: only the category game developer is taken into account, this leads to a number of 352 companies. The term studios is often used for game development companies, to make this distinction clear the term studio is used in the chapter instead of the more general term company. 2. Steamspy early January 2016 shows that around 45,000 copies have been sold, with 10,000 new players added during the holiday period. 3. http://control-online.nl/gamesindustrie/2015/07/15/cijfersgeopenbaard-kosten-en-opbrengsten-van-11-nederlandse-games/ 4. http://80.lv/articles/why-the-flock-failed-creative-director-tells-all/ 5. http://ctrl500.com/business/33-on-metacritic-why-my-game-failed/ e uture e tertai e t games: scaling up Success is not guaranteed in an ever-changing industry with a myriad of business models, increasing numbers of platforms and tech engines and shifting user demands. Competition remains fierce, making it even more difficult for talented, young, small studios to find their niche in the market and continue to grow after their initial launch. Dutch entertainment game studios are moderately successful at the moment. Big hits are few and far in between. Specifically, new studios lack a dedicated business and/or marketing expertise that can help successfully identify market demands and launch a product in that segment. Studios have been able to learn from the successes and failures of others due to a close-knit network and open and transparent community. There is a new-found willingness to share profit margins and losses, which increases awareness and the sense of urgency. The era of small studios being able to live off of small games produced for mobile platforms has ended. The main recommendation after analyzing the data is for Dutch studios to scale up. The answer to the demands of increased quality lies in the formation of bigger teams. When individual studio growth is not possible or desirable, cooperation or even mergers may be the answer. When scaling up, studios also have to look at possibilities to capitalize on successful IP and keep a close watch on market developments. 21